The standard of living for many people decreases after their divorce in Washington. There are a few mistakes you should avoid doing during divorce to help set yourself up better financially.
Taxes
If you divide your retirement accounts, it’s important to do it correctly to avoid taxes. Your agreement should declare that division of your IRA is a transfer incident to divorce. Recipients of an IRA transfer will be responsible for taxation on withdrawals after the initial transfer. Incorrectly reporting QDRO transfers to the IRA and court also result in taxation.
Another important tax issue to handle is which spouse gets to claim the dependent deduction for their children. You’ll need to decide who will claim head of household status too.
Early withdrawal fees
Some retirement accounts charge you early withdrawal fees, so you should avoid this at all costs as fees and taxes add up to a sizable amount. Check the terms of your financial accounts to know if they charge an early withdrawal fee. IRAs typically have early withdrawal fees unless you use a transfer incident to divorce.
Debts
Paying off debts is best to do before you finalize the divorce. You don’t want to have stress over whether your spouse will make the repayment on time. Both spouses are usually responsible for each other’s accumulated debt during the marriage even after divorce.
Make a plan
Remember that just because most people experience a lower standard of living after divorce, that doesn’t mean you have to. Take some time by yourself or with a financial planner to create a plan for living on your own. If you think you’d be unhappy with what you can currently afford, find a way to increase your income to a level you are happy with.
With some adequate financial planning, you can set yourself up for a better life after divorce. Take these issues into consideration as you negotiate a fair division with your spouse.
